Drewry: LNG trade, fleet heading into choppy waters

Heating demand in major LNG importing regions fell in February. In addition, cargo availability tightened after a few unplanned shutdowns, leading to a 4% decline in Drewry Maritime Research’s LNG Freight Index.

In 2011-12, LNG shipping enjoyed a “dream run,” said London-based Drewry, which tracks global vessel movements and trends in many industries. This trend was due largely to increasing tonne-mile demand and an “almost stagnant fleet.”

The LNG Freight Index is freight-rate assessments based on actual deals and market reports for a conventional 160,000-173,000-cu m LNG carrier less than 5 years old. Hire period for long-term freight rate assessments are for charters of at least 15 years, while short-term freight rate assessments are based on charters of 1-3 years. Base year for the index is January 2005.

Fleet affected

Freight market prospects would be even brighter if fleet supply were to remain at current levels, Drewry reported. With 81 more vessels likely to join the fleet 2013-15 and only 10 vessels considered as demolition candidates, however, the trend cannot continue.

The research unit said the global LNG fleet could grow to 430 vessels (accounting for projected demolitions) by yearend 2015, a 20% increase from current levels.

The orderbook-to-fleet ratio was 30% at the end of February, while it was slightly more than 8% at yearend 2010. The previous 26 months saw fresh orders for 89 vessels aggregating 14.5 million cu m.

The research unit said that, based on liquefaction-capacity addition plans in Australia and the US, LNG shipping could need many more vessels in the latter half of the decade than are currently on order. A few positive developments in Africa also suggest LNG production could rise sharply.

The major concern for shipowners, however, is that little liquefaction capacity will be added 2013-15 when most of the new vessels are delivered. Reports of possible restarts of Japanese nuclear plants, it said, could also return the market to a time when vessels waited months for employment or commissioning of a project for which the vessels were ordered.

Japan was the single largest factor driving the market in 2012, said Drewry, and the trend will continue in 2013, as restarting all of nuclear plants “cannot be hurried.” The medium-term outlook for unchartered vessels nevertheless seems dim as about 40 million tonnes/year of additional production would be required to keep the vessels employed.

This is “not on the cards.” Therefore, short-term and spot freight markets are likely to start falling soon.